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Friday Feb 14, 2014

New properties still pricey despite increased activity

The price difference between an average new and existing home narrowed in the fourth quarter of last year but was still stubbornly high despite reports of increased activity in the residential property market.

The average existing house cost R639 000, or 35.2 percent, less than a new house in the fourth quarter, down from R672 400, or 37.1 percent, in the third quarter.

The wide price gap means the housing market was not strong and it was much more difficult for developers to bring new houses to market at affordable levels.

Absa's quarterly housing review for the first quarter highlighted that new housing development was largely taking place in the affordable segment and in flats and townhouses.

Of a total of more than 1.1 million private sector-financed new housing units built between the beginning of 1994 and late last year, more than 800 000, or 73 percent, were constructed in the segments of houses less than 80m 2 and flats and townhouses, it said.

Absa said the average nominal price of a new house increased by 11.3 percent year on year to about R1.8 million in the fourth quarter, which translated into real price growth of 5.6 percent year on year.

The average price of an existing house rose by 8.1 percent year on year to about R1.17m in the same quarter, translating into a real year-onyear price growth of 3.6 percent in the quarter.

This resulted in an average existing house being R639 000, or 35.2 percent, cheaper than a new home in the fourth quarter of last year.

Jacques du Toit, a property analyst at Absa Home Loans, said above-inflation building cost escalations last year had contributed to this relatively strong growth in the price of a new home.

Du Toit noted that building costs increased year on year by an average of 8.1 percent last year compared with 4.3 percent in 2012.

Absa said the average price of a new house increased by 10.2 percent to about R1.75m in the 2013 calendar year, which translated into a real price growth of 4.2 percent. An average existing house increased by 9.6 percent, or 3.6 percent in real terms, to R1.14m.

This means that during the 2013 calendar year, it was 35.1 percent, or R615 300 cheaper to have bought an existing house than to have built a new home.

Du Toit said levels of residential building activity remained under pressure up to late last year with the number of building plans for new housing approved by local government institutions virtually unchanged at 47 369 units in the first 11 months of last year compared with a year earlier.

He said there was a contraction of 0.9 percent year on year in the construction phase of new housing to a total of 38 911 units in this 11-month period despite the construction of new flats and townhouses growing by 12.4 percent year on year.

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